How eCommerce Companies Avoid the “Winner’s Curse” on AdWords

The first time I went to an auto auction, I found what appeared to be the exact car I wanted. I was determined to win! The car looked like it was in perfect condition so I started bidding; ultimately winning! Full of excitement, I walked over to get my receipt and an elderly gentleman stopped me and asked if it was my first time at the auction. I knew he was just about to burst my bubble. “You didn’t bother looking at the other side of the car,” he said. I grimaced as I walked around and saw a huge dent in the other side of the car. My new car was going to cost several hundred dollars more in bodywork and it was too late for me to change my mind.

I had fallen victim to the “winner’s curse.” I didn’t have all of the information going into the bid and I had underestimated the total cost of acquiring this car. I paid more in the auction than the car was actually worth, after adding in the cost of bodywork. I could have easily avoided the “winner’s curse” by walking around the car and determining the actual value of the car before I bid on it. The more information you have, the more easily you can bid both accurately and aggressively.

Every day I talk to eCommerce companies who have unwittingly fallen victim to the “winner’s curse” in their PPC campaigns. Many online businesses are happy with their PPC campaigns performance because they hit a target CPA. If they take the time to calculate the revenue generated through PPC, they will find that they, too, are victims of the “winner’s curse.”

AdWords is a fully automated auction and millions of bids are won every day. Each time a user does a search on Google, AdWords holds a split-second auction. Your bid, Quality Score, and AdRank determine your likelihood of a click from a customer. But if you don’t know the true value of that keyword, you can easily fall victim to the “winner’s curse” by focusing on a metric like CPA, instead of bidding on revenue. Overpaying for some clicks and underpaying for others takes away from your ability to gain market share and manage costs.

The more information you have, the more accurately you can predetermine the value you expect out of the next click you buy on AdWords. Know the value of the keyword before you bid by tracking the right data (i.e. track the revenue from each keyword to determine how much you are willing to pay for a click from a search on that keyword).

At Finch we help you avoid the “winner’s curse” on a large scale, utilizing our technology and expert services. By leveraging exclusive campaign management strategies, creative services, and predictive bidding, we will help you bid aggressively and accurately every time. But don’t take my word for it, get your free AdWords audit today and we will show you exactly what we can do for you.